RIPR is a (paper) newsletter and a weekly column appearing in ten
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About

The Rhode Island Policy Reporter is an independent news source that
specializes in the technical issues of public policy that matter so
much to all our lives, but that also tend not to be reported very
well or even at all. The publication is owned and operated by Tom
Sgouros, who has written all the text you'll find on this site,
except for the articles with actual bylines.

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Tom Sgouros

Sat, 26 Apr 2008

Lenny Bruce used to say he didn't believe the stories about dolphins
pushing drowning sailors to shore. He said dolphins just like to push
people around -- and you never hear from the people who get pushed away
from land.

As a nation of immigrants, we hear a familiar line whenever
immigration comes up: "My grandparents came here and they worked
hard and they did fine." And whenever I hear it, I think of a
Greek uncle of mine, Niko, who I knew when I was little. He wasn't
strictly related, but he was married to Georgia, my aunt's best
friend, and frequently showed up at family holidays where I played
with his daughter Photini. Niko never really mastered English, and I
remember him sitting quietly by himself somewhere to the side of the
action during those holiday gatherings. Sometime around when I was
16, Georgia died and he decided that America just wasn't for him, and
moved back to Athens.

I think of Niko because my grandparents came here and they worked hard
and did, well, okay. But some of their friends came here, worked hard,
and didn't do well at all. Those people didn't marry, or they moved
back to Greece, or they fell sick and died. We have to remember that
the people who speak so proudly of their grandparents are the
descendants of the winners, but that doesn't mean there weren't
losers. Unfortunately, like the swimmers nudged away from shore, we
never hear from them because they don't have boastful grandchildren
around to even out the immigration debate with tales of their
ancestors' failure.

And here's the other remarkable thing about these debates. The first
half of the 20th century was a hard time in this country. FDR talked
about a "third of a nation, ill-housed, ill-clad, ill-nourished," and
that was a time that defeated a lot of people, almost including my
family, too. My grandfather, who came here when he was 10 to be a
water boy on the railroads, lost his Chicago real estate business in
1929, opened a grocery store, lost that, moved to Massachusetts, where
my grandmother's family was, and opened a bar with the little capital
he had left. Then he died. Things were pretty rough during the
1930's, and it's amazing to me that people can look back on that time
and wish that experience on others. But when you hear people say that
their grandparents made it despite the hardships, so why can't modern
immigrants, isn't that what they're saying?

These days, we have around 12 million people in the US illegally, and
somewhere between 20,000 and 40,000 in Rhode Island. The Federation
for American Immigration Reform (FAIR), which seems to be where lots
of these numbers come from, estimates 35,000 and that that the cost to
Rhode Island state and local government of services to them is around
$99 million each year. (See
here.
I think FAIR's numbers are all kind of high,
but let's go with them for the sake of argument.)

Well here's some news: immigrants pay taxes, but that seems to be left
out of the FAIR calculations. The Congressional Budget Office (CBO)
put out a
report
in December about the cost to state and local
governments, and according to numbers I scammed from their footnotes
articles they referenced, and my own data on property taxes, our
35,000 undocumented immigrants
probably pay around $30 million in sales tax, around $5 million in
income tax and around $40 million in property taxes (mostly via rent).

This doesn't add up to $99 million, but part of the difference is
offset by federal dollars that help pay for many of these services.
Taking that into account, and acknowledging that all these numbers are
fairly rough (no one has exact figures, for obvious reasons) it still
seems like undocumented immigrants cost us money, but not nearly
enough for the full-throated screams you hear on the radio.

But notice this: the state seems to come out ahead in these
calculations, but not the cities and towns. FAIR estimates that $87
million goes to education. $40 million in property taxes won't cover
that. The Governor's response? Cut state services.

In a way, this mirrors the situation with the federal government.
According to the CBO report again, the federal government gains quite
a bit more from undocumented immigrants than they cost, but doesn't
share that boon with the states, who just have to suffer for the poor
immigration policy choices made at the federal level. Meanwhile, at
the state level, the state government also seems to come out ahead,
though it's a much closer call. Down at the bottom of the pecking
order, the cities and towns once again, get the shaft. Both the
federal and state governments benefit by having another government
down the line on which they can load the burdens and refuse to share
the benefits.

Policy failures at the federal level have (once again) created a
fiscal problem for the states. Policy failures at the state level
have created a fiscal problem for cities and towns. But people like
the Governor, who are responsible for those failures, want us to get
mad at immigrants instead of at them. The mystery is why we go along
with it.

Sun, 20 Apr 2008

Every time you see a TV ad with shaky camera work, think that you're
seeing the commercial use of what was once a hallmark of the
non-commercial, and marvel at the free market's ability to co-opt
pretty much everything — including economic policies originally
meant as a critique of business-as-usual market capitalism.

Communist revolutionary Che Guevara rapidly became an inspirational
figure for revolutionary socialist change after his execution in
Bolivia in 1967. Forty years later, Che lives on but his image now
adorns t-shirts that have become popular fashion statements. This
transformation reflects the extraordinary power of markets to capture
and transform, turning an avowed enemy of the market system into a
profit opportunity.

The process of capture also holds for economic policy, which has
witnessed the conservative capture of Keynesianism. This capture is
now on display as U.S. policymakers struggle to contain the effects of
a collapsing house price bubble that was recklessly funded by Wall
Street. The sting is that the full powers of Keynesian policies are
being invoked to save an economy that no longer generates Keynesian
outcomes of full employment and shared prosperity.

Fri, 18 Apr 2008

What? There's actual data to inform the discussion of illegal
immigration and its effect on the state budget? Huh.

Here's the Congressional Budget Office's
review
of 29 reports about the fiscal impact on state and local budgets.

What does it say? It says that illegal immigrants pay more in
taxes than the services they receive, but that they pay most of it in
federal taxes, and the services they use are state and local services.
Federal services typically deny assistance to illegal immigrants, but
federal laws and court rulings deny that possibility to states and
towns.

Immigration is, of course, largely a federal problem. It's the
federal government that turned a blind eye to employers who came to
depend on cheap labor from the south. So immigration is, again, a
case of the powerful shifting the cost for their bad decisions onto
someone else, simply because they can. The real mystery is why
everyone gets mad at the immigrants and not at Congress or the
President.

Here
is a page of research from Federation
for American Immigration Reform (FAIR). They would seem to be the
source of a lot of the data used in
debates about illegal immigration here. I couldn't help but notice
that they are on the high side of all the relevant estimates, though
perhaps within the margins of error.

Tue, 15 Apr 2008

It's now quite clear that nothing is going to happen to the President
who has openly admitted that he authorized torture, and that, far from
being the acts of a few bad apples, our appalling descent from at
least a pretense to the moral high ground was engineered by decisions
made at the very top.

It's hard to find
words to express the astonishment at how quickly our country could
descend to barbarism. Not to mention the sadness.

Sun, 13 Apr 2008

We got a taste last week of how House Finance intends to deal with
the fiscal crisislast week. What did we learn? We learned that the distance
between the House leadership and the Governor can be measured in small
fractions of a millimeter. Challenged to do something about the
burgeoning cost of the Historic Structure tax credit, they decided not
to limit it to affordable housing developments, or to cap it, but to
deep-six it altogether.

To understand this story, you need to understand how tax credits like
this work. It's not that hard. Suppose you want to rehabilitate some
historic building. If it meets the criteria, you are eligible for a
30% credit against your taxes. But suppose you don't ever owe that
much, or suppose you're a non-profit who doesn't pay taxes? In that
case you can sell your credit to someone who wants a break. If you
have a credit for $100,000, and you sell it to your friend for
$80,000, then you're $80,000 ahead, and your buddy gets to use your
credit to pay his taxes, so he's ahead $20,000. Sweet, no?

Of course, it usually isn't quite so clean. First, you can usually
only get about 78 cents on the dollar. (If our taxes were higher, you
could get more. Federal credits sell for 90 cents on the dollar.)
Usually there's a broker involved, so you might get $78,000, and your
buddy pay $83,000, and the guy in the middle scoops up the remaining
$5,000. So when it all settles out, here's the score: the state is
out $100,000, but has netted only $78,000 in housing improvements.
The rest has been pocketed by the broker and whoever it was who owed
enough in tax to think this was a good bargain.

As perhaps you can tell, I'm not a fan of big tax credits. When
offered at a modest scale, they can offer a valuable discount on
activity the state wants to encourage, without the bureaucracy of a
grant-making panel and oversight apparatus. (We do have a
residential historic tax credit program which is a different thing,
and limited to a couple of thousand dollars a shot. My house was
built in 1889, and I have used this one.) But tax credits offered in
the amounts we're talking about here are just a way to get less bang
for your buck while well-connected brokers and savvy corporations and
individuals get paid off for no compelling public purpose. It would
be far smarter -- and cheaper -- just to give out grants for good
projects.

There are two big problems, then. One is that the state really
doesn't have an affordable housing program worth the name, and the
historic tax credit was the most effective thing we had.
Unfortunately, the credits granted to little non-profit housing
developers like Providence's Elmwood Foundation and AS220 were swamped
by credits given to build the fancy hotel across from the state house,
and to a few big developers, like Streuver Brothers, Eccles & Rouse,
the developers of the American Locomotive condos and several other
projects in Providence.

Throwing babies out with the bathwater is one of the things our state
government does best, so when a program costs too much, the immediate
response is just to end the whole thing, and that's what House Finance
has approved, in a bill sponsored by Majority Leader Gordon Fox
(D-Providence).

Think that's bad? The other problem is worse. Apparently we've
already given out a few hundred million dollars of these credits that
have not yet been cashed in. The House Finance plan is to issue a
bond for around $280 million to pay the costs of these tax credits.
The theory is that the credits out there are already one kind of debt,
so borrowing is just a way to make it a more predictable debt. We can
schedule the repayments of bonds, but not the timing of people cashing
in tax credits.

Fine, you say, so what's the issue? It's only this: the people to
whom the tax credits were issued were only planning to get 78% of the
cost of the credits, but we're going to pay 100%. In other words, 22%
of that money -- around $62 million -- will be borrowed for no other
reason than to write a check to whoever it was who bought the credits.
It's bad enough that we give tax cuts to people who don't really need
or deserve them, but do we have to borrow to pay for something so
dumb?

A more sensible plan would simply be to offer to buy the credits back
at a slight premium, say 80%. We'd get them back at a discount, but
the people we gave them to would be getting more than they expected,
so there's no reason for them to be unhappy. People who had already
paid for them would get a tax cut, but not as big as they'd planned.
Labor folks, among others, have suggested exactly this, in a bid to
keep a limited version of the credit in place. But House Finance is
not in the business of making rich people and brokers unhappy, so they
declined.

Mad yet? Do you still want to blame our fiscal troubles on the $25
million we spend on welfare and child care. Or the $4 million the
Governor thinks he'll save by cutting immigrants off RIte Care? (He
won't, but that's a different story.) Just remember this the next
time you hear someone say there's pain all around this budget year,
because it's just not true.

Sun, 06 Apr 2008

Last week, there was a State House hearing about the "Economic Growth
and Fairness Act," a complex tax reform bill sponsored by
Representative Art Handy (D-Cranston) and Senator Paul Moura (D-East
Providence). (First, the full disclosure: I did research to support
this bill, and testified for it. I've never claimed to be an
objective journalist, only an honest one.)

Before the hearing, there was a rally in the rotunda protesting cuts
to Head Start, the early-childhood education program. "Great," you
say, "yet another interest group, trying to protect its special
program that's costing us money." I watched the rally, then went
downstairs to the hearing.

And do you know what I saw there? Lots of other interest groups
trying to protect their special programs, mostly tax breaks. The
difference? These people were wearing nice suits. (So was I. As I
said: full disclosure.)

Now this is a little unkind, and perhaps a
little easy. The business owners and managers who crowded the hearing
play an important part in our state's economy. What they say is
important, and what they do is even more important. But it's not
always obvious how far they are from other people looking for
assistance.

Despite the heated rhetoric, the Handy/Moura bill is really just an
attempt to undo much of the last 15 years of poor tax policy in the
state. The idea is to provide property tax relief for people who've
seen their local taxes rise (15%, capped at $600, available to
renters, too) and to restore the income tax to the level of 1996, a
bargain that would save money for about 90% of the state's taxpayers.
The act also takes on a whole slew of tax preferences that have crept
into the code over the years. (Did you know that horse food is exempt
from sales tax? Do you wonder why?) It also attempts to broaden the
sales tax to services, in the hope that the rate can be lowered from
7% to 5.5%. It is an ambitious bill, but calling it radical is only
for people who think Hillary Clinton is a dangerous subversive.

The hearing room was jammed. It seemed as if the entire membership
of the Chamber of Commerce turned out. Banks were there to talk about
special tax preferences for banks, biotechnology companies were there
to support tax preferences for biotechnology companies and rich
manufacturers were there to support tax breaks for rich people. They
all had something to say about how their favorite tax break was
crucial to the state's economy.

Were any of them there to talk about the economic value of good
schools, clean water and safe bridges? Not so much. Ed Cooney, the
Chairman of the Greater Providence Chamber of Commerce and an
executive at Nortek, didn't so much as mention the fact that he's also
the president of the North Kingstown Town Council. North Kingstown's
schools are taking a $3 million cut to a $60 million budget this year,
but he didn't speak a word about how state aid to his town's schools,
after adjusting for inflation, is down 10% under this Governor.

So what about those tax breaks? There are lots, but look at one of
them. Rep. Steve Costantino (D-Providence), the Finance Committee
chair, complained that the bill would cut the biotechnology tax
credit. "But," he said, "we targeted this one carefully." And he's
right: the bill provides an investment tax credit for biotechnology
companies, and it is careful to define the jobs at the company
receiving the credit as full-time and decent-pay. How much does this
cost us? Well, the Tax Division has no idea. Just guessing from the
size of the companies involved, it's probably in the several hundreds
of thousands of dollars, though probably not in the millions. Do we
get jobs out of it? Probably. But we have to ask ourselves: is the
best way to grow a biotech industry in Rhode Island to subsidize
biotech companies? How many should we subsidize? For how long?

If it takes a subsidy to keep a company in our state, isn't that a
sign that we're doing something else wrong? What does that say about
our quality of life or the quality of the employees they're able to
find here? And if the price of that tribute we pay is an inability to
address those quality issues -- not to mention the screaming social
problems that surround us -- then what have we gained?

Personally speaking, I want to see my children educated well, I don't
know how I'm going to pay their college tuitions, I wish there
were a solution to the health insurance costs that are eating my
business alive, and I don't want to die some day when I-95 collapses
while I'm driving through Pawtucket. All of these are serious issues
and our government is currently addressing none of them, largely
because the Governor and his allies in the Chamber have cowed
legislators into thinking that all they can do is manage the decline.

So I say Hurray for Art Handy and Hurray for Paul Moura and Hurray for
any other legislator who recognizes that we didn't elect them to
manage our government into irrelevance. (And another Hurray for
anyone who writes them in support.) I want a government that pays its
bills and one that can address the problems I face. A government
that can't help its citizens is no bargain, regardless of cost.